HERLSON v. RTS RESIDENTIAL BLOCK

• Citation: 993 A.2d 699,191 Md. App. 719
• Parties: Kristin HERLSON v. RTS RESIDENTIAL BLOCK 5, LLC, et al.
• Decision Date: 29 April 2010
• Court: Court of Special Appeals of Maryland

993 A.2d 699

191 Md. App. 719

Kristin HERLSON v. RTS RESIDENTIAL BLOCK 5, LLC, et al.

No. 2627, September Term, 2007.

Court of Special Appeals of Maryland.

April 29, 2010.

COPYRIGHT MATERIAL OMITTED

Saul M. Schwartzbach, Baltimore, MD, for Appellant.

John B. Raftery (Todd Kelting, Deckelbaum, Ogens & Raftery, Chrtd., on the brief), Bethesda, MD, for Appellees.

Panel: DEBORAH S. EYLER, MEREDITH and JAMES A. KENNEY, III (Retired, Specially Assigned), JJ.

JAMES A. KENNEY, III, Judge (Retired, Specially Assigned).

This appeal arises from a declaratory judgment action in the Circuit Court for Montgomery County filed on March 27, 2007, by appellant, Kristin Herlson. She sought a declaration of her rights under a contract for the purchase of a condominium unit then under construction in the Palladian Condominium at Rockville Town Square in Montgomery County. The action was resolved in favor of appellees, RTS Residential Block 5, LLC, and RTS-RD Rockville Investments II, LLC, the sole member and manager of RTS Residential Block 5, LLC (collectively referred to as "RTS"), and against appellant.

In her complaint, appellant alleged that amendments made by RTS to the Public Offering Statement ("POS") materially affected her rights as a purchaser of the condominium and permitted rescission of the agreement by written notice to the seller within five days of receipt of the amendments. But, when she attempted to rescind her purchase contract, RTS refused to return appellant's deposit and to acknowledge rescission of her contract. Appellant requested that the circuit court: (1) adjudicate the rights and liabilities of the parties with respect to the contract; (2) declare that the changes made to the POS were substantial and material; and (3) declare that she had the right to rescind the contract.

RTS filed an answer to the complaint for declaratory judgment seeking dismissal of the complaint for failure to state a claim upon which relief could be granted.¹ RTS alternatively requested that the court declare that the changes made to the POS were neither substantial nor material and that appellant did not have the right to rescind her contract.

On November 16, 2007, appellant moved for summary judgment, which the court denied on January 23, 2008. At trial, on December 17, 2007, RTS's oral motion for judgment was denied, but, after hearing all of the testimony, the circuit court found in favor of RTS and, on December 24, 2007, filed a notice of judgment in RTS's favor. This timely appeal followed, presenting three issues for our review, which we have consolidated into two:²

I. Whether the trial court erred in its interpretation of § 126 of the Maryland Condominium Act (the "MCA"), Md. Code Ann. (1974, 2003 Repl.Vol.) § 11-126 et seq. of the Real Property Article ("Real Prop.").

II. Whether the trial court erred in finding that the changes made to the condominium documents in the instant case did not materially affect the rights of the plaintiff as purchaser.

For the reasons that follow, we shall reverse the judgment of the circuit court.

FACTS AND PROCEDURAL BACKGROUND

In 2005, appellant, an employee of the Mayhood Company, was assigned to perform sales and marketing tasks with respect to Rockville Town Square, a new community being developed by RTS in Montgomery County. She was given the opportunity to be one of the first purchasers of one of the condominium units that RTS had available for sale. Because of her employment, she was familiar with the POS relating to the sales contract for the condominiums.

On June 4, 2005, appellant entered into a sales contract for the purchase of a residential condominium unit in the Palladian Condominium, then under construction. The "initial sales price was $403,900,³ and appellant made a deposit of $20,200."

Appellant's Sales Contract at Addendum #4, Repurchase Addendum, provides, in pertinent part:

In further consideration of the mutual promise of the parties, the parties agreeing to be legally bound do hereby agree as follows:

1. Purchaser hereby represents to Seller that he/she is purchasing the Unit as his/her primary, year round residence and covenants and agrees not to lease the Unit until after the Purchaser has occupied the Unit as his/her principle year round residence for twelve (12) consecutive months. .... Seller shall have all remedies at law and in equity to enforce this covenant and agreement against Purchaser....

2. Purchaser hereby agrees that if Purchaser sells the Unit within the twelve (12)-month period following the date of the Purchaser's acquisition of title to the Unit, Seller shall receive seventy-five percent (75%) of the Net Sales Proceeds, as defined below, from the sale of the Unit by the Purchaser. In order to induce Seller to sell the Unit to Purchaser, Purchaser agrees that the deed of conveyance from Seller conveying the Unit to Purchaser shall contain a covenant in favor of Seller for seventy-five percent (75%) of the Net Sales Proceeds, as defined below, of the sale of the Unit by the Purchaser if such sale occurs within the Restriction Period. For purposes of the Leasing and Resale Addendum, "Net Sales Proceeds" shall mean the total sales price of the Unit appearing on the settlement statement of the Purchaser, as seller, less the payoff of any bona fide lender holding a first deed of trust on the Unit, less down payment, less customary closing costs in Maryland payable to bona fide third parties unrelated to the Purchaser.

3. It is the intent of the Seller that these provisions are to limit the sale of units to investors and not to limit the flexibility of Purchaser who, in good faith, acquired to own the Unit as his/ her primary year round residence. As such, the provisions of this Addendum shall not apply if unforeseen circumstances arise which require Purchaser to sell or lease the Unit prior to expiration of the Restriction Period. Such unforeseen circumstances shall include: a. Job loss resulting in 10% decrease in annual income; b. Relocation of employment over 50 miles from the Unit; c. Any reasonable change as approved by the Seller.

(Emphasis added.)

The sample deed given to appellant as part of the POS included the following provision:

SPECIFICALLY RESERVING UNTO SELLER, the right to repurchase from the Purchaser the Unit, Parking Space and Storage Space in the event that Purchaser shall either sell, rent, or lease the Unit, or attempt to sell, rent or lease the Unit during the period that is twelve (12) months from the date of conveyance of the Unit to Purchaser (the "Repurchase Period"). In the event that Purchaser shall, or attempt to, convey, rent or lease the Unit during the Repurchase Period, the Purchaser shall be obligated to notify Seller in writing and Seller shall for a period of fifteen (15) days following its receipt of such written notice have the right (but not the obligation) to repurchase from the Purchaser the Unit, Parking Space and Storage Space at the same purchase price paid by Purchaser pursuant to the Purchase Agreement. ....

Appellant testified that she considered those provisions to be "significant aspects" of the POS. They were important in her decision to purchase because the restrictions would decrease the number of investment units, and thereby create a stable living environment, less prone to the turnover of leased apartments. In her view, they would ultimately help to increase the value of the condominium.

On January 31, 2007, appellant received a packet of materials from RTS that included "a few updates" to her POS.⁴ Upon reviewing the documents, she found that the amended sales contract and deed for future purchasers no longer restricted the amount of time a purchaser would be required to occupy his or her unit before renting it and that the time a purchaser would be required to own the unit before selling it had been increased "from one to two years."⁵

When asked, "How did the amendments to the POS affect your thinking of purchasing a condominium," appellant stated:

Well, it changed completely in my mind, because to me it affected the character of the community, it affected my investment that I put into it, and in the long run it would affect that, as well. Also, the fact that in those four buildings there are shared amenities, as well as, as the pool, and the fact that now there could be a full tenant occupancy in a building where I'm paying a condo fee to share those amenities didn't seem fair to me.

Appellant testified that this change to the condominium scheme would affect "the character of the community" and her long term investment negatively because buyers intending to occupy the units they have purchased would, presumably, take better care of their units than would more transient renters. According to appellant, had she known that such a change might be made to the condominium documents, she would not have contracted to purchase the unit.

Consequently, on February 1, 2007, appellant sent via certified mail, and hand-delivered to RTS, a letter advising that she did not agree with the changes to the POS and requesting the cancellation of her contract and the return of her deposit. RTS refused to cancel the contract or to return appellant's deposit.

At the close of appellant's case, RTS moved for judgment on the basis that appellant could rescind the contract only if the amendments materially affected her rights, and that the amendments did not do so. The circuit court, stating that there was no disagreement between the parties with respect to what the documents said, only with the interpretation of the documents, denied the motion.

RTS called as a witness Renee Finley, the attorney who had drafted most of the documents making up the POS at issue in the case, as well as the sales contract and addenda thereto. She testified that the amendment to Addendum 4 to the sales contract, the repurchase addendum, would affect only future sales, not the sale of units already under...